Opportunity Zones … For Whom?

Yesterday, Chris Edwards and I co-authored a piece for The Hill on “opportunity zones.” Opportunity zones were one element of last year’s tax reform law.

They’re more or less what would happen if the Low-Income Housing Tax Credit (LIHTC) and Community Development Block Grant (CDBG) produced offspring: opportunity zones both aim at generating economic development in declining areas (similar to CDBG) and use the tax code to incentivize public private partnerships (like LIHTC).

There are other similarities to CDBG and LIHTC. Opportunity zones may benefit investors and developers more than benefit the poor, which makes them like LIHTC.

The law has no provision to measure opportunity zone’s effectiveness, and measuring effectiveness would be hard anyway, which makes opportunity zones like CDBG. Currently, advocates simply cite the number of projects built with CDBG or LIHTC funding, which doesn’t tell a savvy information-consumer whether programs are meeting their objectives. 

As a result, opportunity zones will likely run on auto-pilot, while special interest groups claim it is effective based on the number of projects that were funded through the new tax mechanism. We won’t know how many of those projects would have been built anyway.

Lawyers, accountants, and financial advisors will make money advising investors and developers on program rules, who will then make money deferring and reducing their capital gains taxes.

There’s nothing wrong with cutting taxes, but opportunity zones are the wrong way to accomplish that. And national policy shouldn’t play favorites or pretend Congress or even state governors know where businesses or people should locate. (Hint: the best place for business and poor people to locate probably aren’t declining areas.) 

Rather than federal “help”, states can create their own state-wide opportunity zones by reforming their own tax codes and fixing their zoning, occupational licensing, and childcare regulations. Zoning regulations keep low-skilled workers trapped in declining places and excluded from economic opportunity, and occupational licensing makes it harder to relocate to new economic opportunities. 

Local reforms would really help poor workers, and regardless of whether they brought declining places back, they would improve poor worker’s ability to locate in non-declining places where the jobs are. Opportunity zones? Not so much.